Rights Are Reciprocal In Nature

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The conclusion that can be drawn from Lysander Spooner’s expositions on slavery and the injustice of the Civil War is that the rights are reciprocal.  Compulsory associate in the form of statehood is nothing more than slavery supported through the force of the U.S. Military. Kidnapping, false imprisonment, slavery, and other forms of coerced association violate the same underlying principle. All these forms of forced association restrict autonomous individuals. Who possess the implied right of unrestricted mobility. Suggesting they can travel or reside where they please as long they are not transgressing against the property rights of others. The right to self-ownership. Some may claim that this right inalienable and cannot be voluntarily transferred to another individual.  However, ownership implies that the owner can dispose of, consume, preserve, or transfer whatever they own. Even if that were to be the title to their own life. This could be feasibly transferred to another person via voluntary contracts.  The same can be said for individual rights being sold off or transferred even for temporary durations of time. When at work we are expected to abstain from making off-color or politically incorrect jokes while on the clock. In exchange for briefly and voluntarily suspending our right to free speech, we receive a conditional paycheck and continued employment.

Compulsory statehood not only violates the right to self-ownership by having the federal government assume control over the dissent citizens. It also transgresses a natural corollary of self-ownership, the right to free association.  If an individual owns themselves, they can choose who they associate with. Some may argue that you don’t choose your neighbors. Directly this observation is true. Indirectly it is false. Through purchasing a home in a specific neighborhood to consent to live near the people in the adjacent and parallel domiciles. This is quite qualitatively different then be forced to reside in a specific neighborhood by law or threat of military force. If the individuals residing in a certain geographic area all share similar sentiments and opt to become an autonomous region that is their prerogative. Yes, the Confederate South was guilty of the sin of slavery. Even considering this moral misstep, why should their right to free association be viewed as any less valid. Giving credence to the colloquialism “Two wrongs don’t make a right”. If were to examine the example of Catalonia, many Americans would be much more sympathetic to their separatist cause. In 2017, the Catalonian successionist movement presents a similar scenario.  A group of individuals self-identifying as Catalonian wanting to separate from Spain. Paralleling the Confederacy’s sense of southern identity driving them to want to become a sovereign governing body. Catalonia’s movement is easier to empathize with because it hasn’t been sullied and stained by any association with atrocities of the same magnitude as slavery.

The are other instances of the right of the free association being obscure by another issue. One of the most salient enemies of free association is political correctness. It is a lens that serves to only distort the general principle of having the right to choose whom you keep company with. Often, if you defend the right of state succession or the right not to associate with minority groups, you will be accused of bigotry. People believing that an unwavering defense of free association being tantamount to tacitly being racist demonstrates a lack of nuanced understanding. Not to mention this is nothing more than a superficial inference. It is possible to disagree with Jim Crow laws but also oppose the Civil Rights Act of 1964.  Both sets of laws infer our right to free association. Jim Crow laws are an example of forced exclusion. The state restricting who you can dine with, socialize with, and trade with through compulsory law. The Civil Rights Act of 1964 operates as a form of forced integration.  This phrase generally is utilized in the context of immigration it also applies within the context of the Civil Rights Act. Business owners are being forced by statutory law to ignore certain characteristics of job applicants in the hiring process. Even though the proprietor of the business does have legal title and liability for the enterprise he established and manages. There is even some debate as to whether private business owners have a right to discriminate against customers for nonessential goods and services. The Masterpiece Cakeshop LTD V. Colorado Civil Rights Commission case did appear to be a victory in the arena of free association. Many have erroneously labeled this situation as gay rights case.  This is incorrect. The larger principle behind this case is not whether a business is inclusive and accepts the transactions from everyone. Rather does the proprietor have the right to decline? The fact that the case involves a gay couple is unfortunate because it muddies the waters. Instead of commentators being focused on the principle of private property and individual liberty, they are all too fixated on the sexuality of the patrons who were denied service. If this had been a Neo-Nazi that had been denied service, who there has been any controversy? No. Making it reasonable to surmise that the social justice stance on discrimination is not only antithetical to our natural rights but is also hypocritical.  If we are truly committed to the principle of equality, then shouldn’t all businesses be forced to transact with every customer? Regardless if they are intoxicated and belligerent or white supremacy?  This frequently ignored question could lead someone to believe that the equality principle is one-sided.

It is utterly perplexing that most people fail to see the equivalence between various rights. For example, the right to gun ownership implies that an individual can abstain from owning a gun. The Second Amendment of the Constitution is predicated on the natural law principle of the right to defend one’s self and property.  The reciprocal nature of this right is somewhat self-evident.  This concept could easily be extrapolated to and to any of our other natural rights.  The ability to discriminate is at the very core of the principle of free association. Anytime we choose to patronize one restaurant over another we are actively engaging in a form of discrimination. The gay couple who were denied service by the Masterpiece Cakeshop could have easily utilized this principle to convey their dissatisfaction with the owners. Word of mouth can be the death knell for a small business, the couple could have easily told all their friends, family, co-workers, etc. about the incident. Urging of their close acquaintances to avoid this shop like the plague. Opting to discriminate against the shop. Is this an invalid form of protest? Not. It is equally as valid as a private company choosing to not do business with the couple.

This principle of voluntary discrimination makes state succession valid and any attempts to thwart these actions aggression. The south actively chose to discriminate between tolerating the overreach of the federal government or form their voluntary block of associated states. Through self-ownership and mutual consent among the citizens residing south of the Mason-Dixon line, this movement was valid. President Lincoln’s nationalistic initiative to force the south back into the Union was conspicuously transgressive.  


The 2020 Coin Shortage Explained

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One of the biggest mysteries of 2020 was the change shortage. Why were so many retailers requesting that patrons either use a card or have exact change? Many of us were puzzled by these signs that have become a common fixture of many checkout lines across the nation. What is the explanation for such a monetary phenomenon?  Within my nearly thirty-two years on this planet, I have never been requested by a brick-and-mortar vendor to have exact change. However, in the era of COVID-19, there are many strange things are happening. Never mind the change shortage, a few months back the United States was grappling with a toilet paper shortage. One commodity nearly everyone has taken for granted.

As one could predict, the national coin shortage is related to the COVID-19 pandemic. This calamity of a coin shortage can be linked back to the precautions taken to limit the spread of the virus. The shelter-in-place orders resulted in the shutdown of many stores and restaurants. Resulting in an overall lull in economic activity.  In other words, the cash registers of many retail outlets were not be replenished by circulating cash (include metal coins). Some may surmise that due to the uncertainty of pandemic many people may opt to hold cash balances. Coins generally are circulated throughout the economy through bank deposits and are recirculated back to banking customers through the change provided by retail stores and restaurants. Per the U.S. mint, 83 % of the coin supply is recirculated through stores and third-party coin processors.

The downturn in economic activity during the shutdown left only meager coin reserves in the cash registers of American stores. Meaning that once stores reopened, they would quickly exhaust their coin supplies. This was only compounded by the fact that the banks could not fulfill the retail demand for coins due to fewer customers depositing them. The mint falling behind on coin production left retailers had no other option but to request that customers either pay by a card or exact change.

Is Fractional Reserve Banking Ethical Part V: Conclusion and Compromise

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The debate over whether Fractional Reserve Banking is ethical to proceed over approximately a decade (the late 1980s/ early 1990s to the early 2000s). Resulting from subsequent papers repudiating the previous claims over the researchers on the other side of the issue. It should be noted that in these series of retaliatory papers that technical arguments were presented in tandem with ethical justifications for or against this practice. For the sake of brevity, I chose to focus on the ethical considerations of the topic. However, this does not exclude a potential technical comparison of Fractional Reserve Banking in the future. 

To any reader who has never thoroughly examined nor given a second thought to Fractional Reserve Banking, I hope reading this series of essays was illuminating. Fractional Reserve Banking is arguably the most prevalent banking system globally. Yet, something that impacts our lives daily we never think to question its inner mechanics let alone whether it is ethical. The ethics of banking extend beyond whether the patrons are benefiting at the expense of someone else, either through easy access to loans or interest payment on savings. There are potential ramifications to the economy. 

Distortions in the credit market are precisely the impetus for business cycle calamities such as the cataclysmic burst of the Housing Bubble in 2007. Providing loans backed up by fiduciary media is nothing more than a house of cards waiting to fall done. Artificially manipulating factors such as prices, interests, and money supply can only facilitate the misallocation of resources. Such indicators operate as unspoken signals to consumers and entrepreneurs. Due to this fact, these distortions create an illusory image of the loan market and naturally economic agents respond accordingly (p.108). A fact that both George Selgin and Lawrence White are too quick to refute and dismiss (p.102). This carries the implications of defrauding the economy as a whole versus being isolated to the bank’s customers. Even if you are the type to limit all your transactions to precious metals or cryptocurrency, it is worthwhile to read up on this topic.

Summary of Compelling Arguments From the Austrian School:

It is difficult to say whether the Free-Bankers or the Austrians are on the right side of the debate. Both camps provided some truly convincing arguments. The Austrian opposition notes how ownership can only legitimately be taken on by one person and Fractional Reserve Bank obfuscates this immutable law of property ownership. From a contractual standpoint, that the agreements between banks and clients in such an argument are illegitimate. Since the terms are not only unclear to the typical layman but are a categorical misrepresentation. Presenting fiduciary media as actual money. The disingenuous nature of this faulty contract is only compounded by the fact that these claims for money are based upon the banknotes that are not back by currency or specie. Attempting to redeem them for actual currency is analogous to using a deed for a boat and attempt to claim ownership of a house. Also that it is a false analogy to argue that any devaluation of present money caused by the issue of fiduciary media is no different than an increase in the supply of a good due to protection or harvesting. 

This is because the increase in the supply of lumber from harvesting more oak trees is derived from legitimate market processes and in-turn does not seek to directly devalue anyone else’s property. Also, that in no way can Fractional Reserve Banking represent the Demonstrated preference of bank clients. Demonstrated preference can only be expressed with one’s property. Fractional Reserve Banking by its very nature disrupts this relationship.

Summary of Compelling Free-Banking Arguments:

The Free-Bankers also bring up some compelling moral defenses in favor of Fractional Reserve Banking. They are even bold enough to directly claim the practice is not fraudulent. Through a banking client electing to accept the terms of service regardless of their understanding, the contract is still valid. It would be one thing if these banks purported to practice 100 percent reserve banking, but function as a Fractional Reserve institution. These contracts are formulated between consenting adults, it would be antithetical to the principle of individual freedom to prohibit such arrangements. The real trouble comes from government interference. One only needs to look at the large array of protections awarded to backs through the FDCI to see the true culprit in shielding unsavory banking practices from insolvency or litigation. Also, the ignorance or the naiveté of the consumer is not a reasonable justification for banning a product or service. Even though the risk of a bank run is present, it is a relatively rare occurrence from a historical standpoint. If faced with a potential bank run the bank can issue an option clause suspending redemption, solving the issue through valid contractual recourse. Speaking of redeeming bank deposits. A customer assumes the risk of not being able to redeem money when they agree to open an FRB account. They assume the risk. In turn, for the opportunity cost of having their liquid money held and the potential risk of a bank run/ insolvency, they receive an interest payment. Overall, patrons must prefer Fractional Reserve systems to 100 percent reserve banking. There have never been any governmental decrees in modern history that all banking must be done via a Fractional Reserve System. Despite its flaws, ultimately, the people prefer being paid interest payments versus having to pay warehousing fees.

Can There Be a Compromise?

There are certain aspects of both arguments that appear to be flawed. The Free-Bankers are too lackadaisical when it comes to distortions in the credit structure enabled by Fractional Reserve Banking. The Austrians to some extent seem too rigid in their interpretation of property ownership. Under many of their arguments likening the practice to a Ponzi scheme. Yet, to be conceptually consistent would not these same economists also take issue with multi-level-marketing? Then again it could also be counter-argued that MLM schemes and Fractional Reserve Banking while present similar confusions, property rights have much greater degree clarity in MLM arraignments.

Back in 2000, the economist Jorg Guido Hulsmann wrote an article in the Independent Review refuting the Fractional Reserve practice of creating “money”. Hulsmann (see page 108) much like his anarcho-capitalist counterparts Hoppe and Block are opposed to government intervention. If FRB is morally and technically flawed how can we address the issue of it short-comings without introducing state involvement? In this twenty-year-old article, Hulsmann presents a summary of points previously made by Hoppe and Block that would alleviate some of the issues relating to the categorical confusion. It should be noted that Hulsmann in that these suggestions for informal rules and norms of banking presume no state involvement in banking. Also, the author details the intimate relationship between the FRB and the government. Going so far as to refer to it as a “handmaiden” of government (p.108). Making it easy to infer that Hulsmann believes that the intertangled marriage between Fractional Reserve Banking and government is an unbreakable bond. However, let’s take these suggested conditions as theoretical and contingent upon a banking system free of regulation. See his suggestions below:

“…Fractional reserve banks would have to use a different language than they commonly use because words such as “deposit” are deceptive. They would have to make it clear that money “deposited” with them is, in fact, a credit of unspecified duration. And the “banknotes” they issue would have to be presented not as money titles but as some sort of very liquid IOUs..”

            “..On the “FR notes,” one would have to find a promissory note of the following type:

 The FR Bank promises the holder of this note to try to redeem it out of its gold reserves. Because FR notes are not 100 percent covered by gold presently in our bank, in case we cannot redeem, the following rules apply. . . .  (p.108)”

Is Fractional Reserve Banking Ethical -Part IV: The Defense of Fractional Reserve Banking

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Part I: Click here.

Part II: Click here.

Part III: Click here.

It is quite clear at this point that followers of Austrian economics view Fractional Reserve Banking as nothing more than a Ponzi Scheme. However, proponents of the Free Banking School (arguably an outgrowth of the Austrian School) believe that this practice is legitimate providing there isn’t any government interference in banking. Even the uninitiated observer will admit that this contingency is a highly unrealistic one. In the modern era, banking continues to be a heavily regulated industry. Free Bankers may have a relatively cogent ethical argument from a theoretical standpoint. After all, it is the responsibility of a mentally competent adult to be aware of the terms of service for any product or service they choose to receive. Ignoring the fine is not an exculpatory factor. Either from a legal standpoint or from an ethical perspective. Also, to be conceptually consistent one should scrutinize multi-level marketing schemes. Such a business model mirrors similarities to Fractional Reserve Banking. Hence why opponents liken it to a Ponzi scheme or pyramid scam.

Argument #1: It Isn’t Fraud.

From the Free Banking perspective, Fractional Reserve Banking is not a fraud. If the banking establishment makes it clear that the services provided constitute Fractional Reserve Banking, then the arrangement is legitimate. This is because the terms of the contract were not violated (p. 87). It would be problematic to present your services as 100 percent reserve banking if it encompasses the practices of the Fractional Reserve System. Fraud would entail a misrepresentation of the bank’s services. 

Taking any measures to prohibit this system of banking is antithetical to the principle of individual freedom. Any such interference would  be obstructing an existing contract between consenting parties. Doing nothing more than disturbing the economic liberty of freedom of contract, which is a pillar of private property rights (p. 87). Individuals who oppose the practice find the freedom of contract argument to be farfetched as few patrons have a firm comprehension of what Fractional Reserve banking entails (p. 88). The naivete of the consumer does not sully the legitimacy of the arrangement. Even Murray Rothbard himself has stated that historically banks have rarely retained a 100 percent reserve system (p.88). Why? Most likely because the banks clients preferred a Fractional Reserve system. If customers prefer an interest payment on their savings versus a maintenance fee for warehousing, so be it (p.88). The market for banking services has responded accordingly.

Circling back to the issue of misrepresentation of services, even the hardline naysayers believe that such a banking system could be admissible under certain conditions. Most notably if there was the further elucidation of the specific details of fractional reserve services. A long-standing concern of economists such as Hans Hermann Hoppe and Walter Block being that such ambiguity makes the practice fraudulent. Creates categorical confusions between money and fiduciary media (p.20-28). Professor Block asserts that the redemption requirements need to be clarified to set aside the concerns of fraud (p. 89). Whereas Block’s counterpart Hoppe stresses that banking institutions should present a warning regarding the suspension of redemption. He analogizes this precautionary courtesy to an option clause. Unfortunately, this concern does not comport with the facts of history. As is evident by the Scottish period of Free-Banking in which specie payment was suspended for decades (p. 89-90).

Another argument that grapples with the question of whether FRB is fraudulent pertains to the ability of the banks to fulfill redemption obligations. Keeping low percentages of reserves on hand turns money redemption into a gamble. However, this concern is inconsequential. Historically even in the absence of government intervention few banks have failed to fulfill any redemption obligations to patrons (p.90). For one, solvent banks are not prone to bank runs. Even in the event, a solvent bank runs out of currency, they can issue an option clause to temporarily suspending redemption. Resolving the issue through contractual channels (p. 91).

Argument #2- The Concerns Over Third-Party Effects Are Not Substantial

The most salient third-party effect or “spill-over effect” confronting the practice of Fractional Reserve Banking is a decreased likelihood of successful redemption. Obviously, in a Fractional Reserve Banking system, the more money that is lent out the fewer reserves the bank will have on-hand. Resulting in adverse consequences for the individual demanding to withdraw money from their account. It should be noted that the depositor agrees to this argument upon opening a bank account. Therefore, by signing on the dotted line of the terms and services of the bank, they choose to assume the risk (p. 93). Despite the risks, bank patrons continue to bank with these institutions. Alone based upon the Rothbardian theory of Demonstrated Preference the individual bankers must benefit from this arrangement. After weighing the benefits concerning the costs (p.93). 

The spill-over effects of Fractional Reserve Banking are not solely confined to banking transactions. The practice has also been claimed to create other distortions throughout the economy. Through how loans are funded it compromises some say the credit structure is compromised. It should be noted that the risks are somewhat minimal. If anything it aides the economy by providing a larger stock of capital (p.94). The issue with this criticism is that much of the instability in the economy comes from the intervention of central banks and governments and not Fractional Reserve Banking. This form of banking is not prone to instability or “cylindrical over-expansion”(p.94). These claims underestimate the fact that the amount of “nominal money” issued offsets the “.. changes in the velocity of money..”. Fractional Reserve banking works to alleviate the disequilibrium and “ business cycle consequences”. Hoppe and the company also assert that any injection of fiduciary media will ultimately result in a business cycle. However, if the increase in fiduciary media is matched by demand a disequilibrium will not arise (p.101-103).

Argument #3: The Popularity of Fractional Reserve Banking.

The popularity of Fractional Reserve Banking is another factor to contend with. Banking customers have demonstrated their preference for FRB. Historically, few banks have remained a 100 percent reserve system. However, customers continued to do business with these institutions (p.95). Contributing to this popularity has been the incentive of banks paying interest on deposits versus requiring a warehousing fee (p.95). Banking patrons also held faith that their bank had sufficient funds to fulfill withdrawal demands. Bank runs were generally triggered by other factors signally insolvency to bank clients. Countries such as the United States with greater propensities towards bank insolvency tend to have many protective laws shielding the banks from market pressures (p.95-96). It should also be noted that back in the 1800s when banking legislation was being discussed in the press the banking system was openly described as a fractional reserve system (p.96). Not only fully informing the average constituent of the details of the Fractional Reserve system, even with this knowledge doing little to dampen its prevalence (p.96).

The use of Fractional Reserve Banking has never been compulsory. There has never been any laws or penalties compelling banking in the United States to levitate towards this specific banking system (p.97). Patrons voluntarily assume the risk of engaging in this variety of banking for the trade-off of being rewarded with an interest payment (p.97). The argument that clients are unwittingly tricked into patronizing an illusory form of banking is dismantled by the fact that banks compete for business. Nothing is stopping an enterprising individual from persuasively selling 100 percent reserve services (p.97).

Is Fractional Reserve Banking Ethical Part II: Contract Theory and the Naysayers

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See Part I: Click.

Introduction to Part II:

The key arguments against fractional reserve banking being a moral system came from a 1998 paper co-authored by Austrian economists Hans Hermann Hoppe, Jorg Guido Hulsmann, and Walter Block. The white paper entitled Against Fiduciary Media was a response to a previous paper written by George Selgin and Lawrence H. White. Hoppe at al. crafted a repudiation against  Selgin and White’s 1996 paper In Defense of Fiduciary Media or, We are Not Devo(lutionists), We are Misesians. In which both scholars provide a normative and positive defense of fractional reserve banking. Even utilizing Murray Rothbard’s Title-transfer Theory of Contract to defend the practice. However, this application of the Rothbardian contract theory did not sit well with Hoppe and the company. All being devoted and unwavering followers of Rothbard believed that Selgin and White’s interpretation of Title-Transfer Theory of Contract to be incorrect. Making their justification of fractional reserve banking on grounds of contract theory to be inherently flawed. It is worth noting that Hoppe was a direct protégé of Murray Rothbard and even owed his career and position teaching at the University of Nevada, Las Vegas to the late Austrian economist.

Rothbard’s  Title-Transfer Theory of Contract:

Before claims that Selgin and White did not faithfully adhere to or misinterpreted Title-Transfer theory, it is important to thoroughly explain this concept. A reader without a firm comprehension of this idea cannot adequately determine if free-banking proponents of fractional reserve banking suffer from profound confusion. The proceeding section will provide a brief overview of this theory. Hereby providing the reader with the requisite background information to justly assess this debate.  

Before diving into Rothbard’s theory, it is important to note his ideological disposition.  Murray Rothbard was the modern father of an ideological subset of libertarianism known as anarcho-capitalism. Rothbard and his followers hold that there should not be limited government, but rather no government. All services and products can be produced by private industry with no necessity for government intervention. This even includes services that have been traditionally provided by the government. This includes defense/security services, law enforcement services, charity, resource management, infrastructure, private legal adjudication, and so on. Rothbardians even go so far as to assert that the government possesses a monopoly on such services. It is imperative to understand this aspect of Rothbard’s political economy and political philosophy. It illustrates the fundamental philosophical precepts that govern his theory of contract.

Rothbardian Contract Theory is expounded upon in his 1982 book The Ethics of Liberty. Rothbard derides that the concept that all contracts in a just society need to be enforced( P.133). He draws a sharp line of delineation between “promised” and “conditional” contingencies in matters of exchange. Per his logic, the utilization of legal channels to enforce a promise is wholly illegitimate. Constitutes the use of government force in a situation in which no property has been transferred. Making it equivalent to state enforcement of morality (p.133-134). The reason why the property needs to be involved for a contract to be valid pertains to the distinction between what is intrinsically alienable and inalienable to the individual. This has to do with the fact that a person cannot alienate their own will or relinquish control of their mind and body to someone else. Humans can quite easily dispense with tangible property, including money (p.135). Due to the fact enforcing a promise is a compulsion because it interferes with the free will of the individual. It is not technically a breach of contract. On the other hand, if the agreement included a transfer of property for non-compliance then it would be another story.

In instances of conditional contracts and agreements, noncompliance is equal to a form of theft.  One salient example Rothbard provides is the circumstances of service providers receiving advanced payment but never providing the service (p.137). For example, if I were to offer to paint your house and I received an advanced payment of $300.00 and never show up your house that is theft. One contractual contingency that can shift a promise to a conditional agreement would be a performance bond clause within the agreement.  For Rothbard’s example, if a movie theater has a meet and greet event with a famous actor, they can put into the agreement a clause where the actor agrees to pay the theater a sum of money for abdicating this obligation (p.137). Since a property can be transferred and not the will of the actor this is an ethically binding agreement. However, failing to fulfill a property-related obligation is not always necessarily deemed as implicit theft. In instances where a creditor provides immunity to a debtor who cannot pay their bill this is legitimate (P.144). Why?  The creditor reserves the right to forgive debts due to the fact they are the ones who transferred their property under the condition of repayment. Please note that this scenario details circumstances in which the credit lent out their funds.

It should be noted that a Rothbardian conception of contractual property rights does not preclude someone from selling off a portion of their property. For example, if I own 100 acres of land in Montana. It is well within my rights to transfer you 5 acres for $20,000.00. Concurrently, retaining my claim on the residual 95 acres of land. This does not mean that mean I in any way still own those 5 acres. Through the sale of this land, I have effectively transferred ownership to you. In turn, I have relinquished by entitlement to the lands sold.

Page 146:

“Another important point: in our title-transfer model, a person should be able to sell not only the full title of ownership to the property but also part of that property, retaining the rest for himself or others to whom he grants or sells that part of the title. Titles, as we have seen above, common-law copyright is justified as the author or publisher selling all rights to his property except the right to resell it.”

How The Free-Banking Argument For Fractional Reserve Banking Violates Contract Theory:

Selgin and White claiming that fractional reserve banking is consistent with Title-Transfer Theory suffer from some blind spots. Blind spots that are fully magnified by Hoppe et al. One of the fundamental chinks in the armor of the Free-Banking argument is that fractional reserve banking inherently violates Title-Transfer Theory. It assumes that two people can own the same piece of property simultaneously (p.21). By the very nature of how fractional reserve banking engages in lending, it creates ambiguity regarding ownership. Through issuing more promissory notes both the bank and the customer assume ownership of the same banknote, which is fraudulent by nature (p.22).  Creating more claims to money against the present supply of money will not create more money (p.22). Rather, will only serve to redistribute the present supply of actual currency from client to client without increasing the amount of money in the vaults (p.22). Effectively creating fiduciary media (money-substitutes issued by a bank that is not backed by gold or paper money) out of thin air without transferring assets or liabilities (p.22). As detailed in Rothbard’s theory, we can sell off a portion of our property. However, we relinquish our own once we transfer it to the party purchasing it.

This illusory arrangement also conflates property with property titles (p.23). Treating and categorizing banknotes( fiduciary media, money claims) as money (physical property). This only enables this fallacy to continue. Keeping in tune with the Austrian tradition the Regression Theorem states that all money had a prior use value (p.34-36). For instance, tobacco and nails at various times in human history have been used as money. Meaning that these banknotes cannot be money in the actual sense, but a claim or title to money. Through this categorical fallacy, the banks can divorce titles from ownership resulting in the redistributive practices of fractional reserve lending (p.23). Even going so far as to promising future entitlement to goods against present goods that may or may not be fulfilled. It would be honest to label these claims to future goods or debt claims, but not a claim to money (p.24).

An inquisitive observer may question why it is dishonest or even outright fraud to categorize future claims to money as money titles or even as money? Hoppe et al. frame this from the standpoint of we cannot claim or transfer ownership from a title to a car for anything but a car and the same applies to money (p.25). If we were using more precise language what banks and customers have truly agreed to is debate claims versus money titles. Per the authors of  Against Fiduciary Media Selgin and White adopted a hyper-subjective interpretation of contracts to side-step this discrepancy (p.26). The misrepresentation engaged in by practitioners of fractional reserve banking extends beyond labels of goods, but to actual quantities as well. By treating fiduciary media as money, it creates the false perception that clients own more than what they truly due on paper. The fabricated money quantities do not reflect the amounts present in the vaults of the bank (p.27). Free-banking proponents may believe that fractional reserve banking isn’t so much the problem, rather government intervention. As long as the withdrawal requests are fulfilled it cannot be tantamount to fraud. However, even without state interference, the transfer practices of fractional reserve banking blur the lines of definitive ownership (p.29). Making the system incompatible with upholding property rights or just contract enforcement.